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Credit card companies charge a lot of fees. This is how they profit from their business. If you are not careful, you may not be aware that additional fees have been tagged on. So, before you even apply for a credit card and choose the best one, you need to familiarize yourself with fees.

What are annual fees?

Some credit card providers charge an annual fee as a service fee to maintain your credit card account. This is charged especially when you are not able to use your credit card for a period of time. Some banks, however, waive the fee if you use your credit card frequently. The only time that they are going to charge you with the annual fee is when you are not able to use your card for more than a year. So, make sure that when you get credit cards, you are going to use them. Do not get credit cards that you can not handle.

What are finance charges?

Finance charges are interest fees additional to the amount that you owe. It is charged just because you borrow money or you have credit. The balance that you incur every month will be separate from a finance charge. This is calculated several ways. Usually it is calculated using your daily average balance multiplied by your interest rate. You can ask your bank on how they calculate your finance charges for you to understand the amounts you see on your bill. It is important for you to monitor the fees charged on your bill so you can avoid overpaying your credit.

How often are finance charges charged?

Usually, it comes every month especially when you have credit left over from the previous month or you were late in making payments. This fee can increase if you are not careful. Sometimes, banks do not charge a fee if you were able to completely payoff your balance at the end of every billing cycle.

How are late fees calculated?

It depends on the banks. Usually they set a percentage for a late payment and multiply it with your minimum monthly payment and that is the amount that they will charge you. But to be sure, call your credit card provider so you will have a thorough explanation on the calculation.

Banks usually give a grace period on your bill. After your due date, they usually give a few days before they charge you the fee. So, if you were not able to make that payment on your due date itself, make sure you pay before your grace period ends for you not to be charged a late fee.